CBR makes a conservative move

The CBR continued 'normalisation' of the key rate with an 100bp additional cut (to 14.0%) announced at today's meeting.

The market seemed to expect a much more aggressive move (in the range of -250bp to 350bp), as reflected by heavy positioning in rates and RFLB prior to the meeting. Thus, there may be some dissapointement in the short and medium term, especially given the regulator's still rather conservative rhetoric regarding the risks in the months ahead.

Societe Generale notes in a report on Friday:

• Wording of CBR rhetoric implicitly strengthens our projected 'normalisation' trajectory - to 13.0% by the end of Q2 and to 11.0% by the end of Q4 15, though the particular distribution of rate cuts over subsequent meetings might become subject to the flow of statistics and the prevailing backdrop.
  
  
• Objectively, the CBR cannot proceed with rapid normalisation, as a bucket of systemic risks outside the conventional 'inflation-growth' dichotomy is creating constraints. In particular, the deceleration of monetary aggregates reflects the excessively tight cost of credit. At the same time, a rapid reduction of the key rate might impair ruble savings incentives, triggering capital outflow. By highlighting these risks, the CBR is likely signalling that the pace of 'normalisation' will remain conservative and subject to events (or data) flow.